Senior Housing Development in China
ARCWtiV7ES
by
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
AUG 2 0 2015
Tian Tang
LIBRARIES
Bachelor of Economics
Chongqing University, 2002
Master of Social Science in Corporate Communication
The Chinese University of Hong Kong, 2010
Submitted to the Program in Real Estate Development in Conjunction with the Center for Real
Estate in Partial Fulfillment of the Requirements for the Degree of
Master of Science in Real Estate Development
at the
Massachusetts Institute of Technology
September, 2015
C2015 Tian Tang All rights reserved
The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of
this thesis document in whole or in part in any medium now known or hereafter created.
Signature redacted
Signature of Author
Center for Real Estate
Signature redacted
July 30, 2015
Certified by
Professor Albert Saiz
Daniel Rose Associate Professor of Urban Economics and Real Estate,
Depaytment of Urban Studies and Center for Real Estate
Signature redacted
Thesis Supervisor
Accepted by
Professor Albert Saiz
Chai
mittee, Interdepartmental Degree Program in Real Estate Development
Senior Housing Development in China
by
Tian Tang
Submitted to the Program in Real Estate Development in Conjunction with the Center for Real
Estate on July 30, 2015 in Partial Fulfillment of the Requirements for the
Degree of Master of Science in Real Estate Development
ABSTRACT
The number of Chinese citizens aged 60 years and above is predicted to reach to 440 million by
2050, accounting for roughly 34 percent of the country's total population. The one-child policy
has created a declining fertility rate. At the same time, the life expectancy of people keeps rising.
The combination of low fertility and long life spans have moved China towards a rapidly aging
society. To prepare for the aging society, the Chinese government has issued a series of policies
to enhance the senior care industry. The government encourages private and foreign enterprises
to invest and engage in senior care services in China. Chinese developers and operators are
trying to import foreign practices into the Chinese context. Foreign experts are looking for
business opportunities in this untapped market. Although China's senior housing market is
undoubtedly appealing, industry players must address several issues before stepping into this
market because it is still in infancy period compared to other developed countries. The study
examines the key factors that influence senior housing development in China, and those essential
elements that foster the industry in U.S.
Thesis Supervisor: Albert Saiz
Title: Daniel Rose Associate Professor of Urban Economics and Real Estate, Department of
Urban Studies and Center for Real Estate
2
ACKNOWLEDGEMENTS
I would like to express my deepest gratitude to my thesis advisor Professor Albert Saiz for his
guidance and comments. I also extend my sincerest gratitude to Steve Weikal, the head of
industry relations of MIT Center for Real Estate, for his help connecting me with industry
people.
Special thanks goes to Kevin Glover and Mark Erickson. Mr. Glover worked as the Senior Vice
President Development Service for Erickson Living from 1984 to 2009, responsible for the
program, design, and quality standards for Erickson Retirement Communities. Mr. Erickson was
the Chief Operating Officer of Erickson Living from 2007 to 2010, responsible for overall
operations and management of all Erickson Living's retirement communities. He also worked as
the Managing Director of Fortress Investment Group from 2011 to 2015, responsible for
Continuing Care Retirement Community development in China. Mr. Glover and Mr. Erickson
donated their time to give interviews and provided me with valuable opinions.
3
TABLE OF CONTENTS
Chapter I
Introduction
1.1 Research Motivation......................................................................................6
1.2 Research Methodology................................................................................6-7
1.3 Research Objectives...................................................................................7
Chapter II
China Senior Housing Market - An Untapped Market
2.1 Demographic Background............................................................................8-9
2.2 Social Background...................................................................................10-12
2.3 Economic Background .............................................................................
Chapter III
13-15
China Senior Housing Market - An Immature Market
3.1 Social and Cultural Obstacles......................................................................16-17
3.2 Medical Insurance.....................................................................................17
3.3 L and Policy ............................................................................................
3.4 Financing Model......................................................................................20-21
3.5 Operation Model......................................................................................21-23
3.6 Laws & Regulations.................................................................................24-28
3.7 Professional Workforce.............................................................................28-29
Chapter IV
Implications of U.S. Senior Care Industry to China
4.1 Health Care REITs...................................................................................30-33
4.2 Tailored Market.......................................................................................34-36
4.3 Laws & Regulations.................................................................................37-42
4.4 Professional Workforce..............................................................................42
4
18-20
Chapter V
Senior Housing Case Study
5.1 Case 1 - Brooksby Village Senior living Community..........................................43-55
5.2 Case 1 - Star Castle Senior living Community...................................................56-60
5.3 Case Comparison ......................................................................................
61-62
C o n clu sio n ................................................................................................
. 63
B ib liog rap hy ..............................................................................................
64-66
5
Chapter I
Introduction
1.1 Research Motivation
Declining fertility rates and increased longevity have moved China's demographic balance
towards a rapidly aging population. To prepare for the aging society, the Chinese government
has issued a series of policies to enhance the senior care industry. As an important segment of the
senior care market, senior housing is very appealing to industry players. However, China's senior
housing market remains immature and largely unregulated. Many obstacles, such as cultural
prejudices, land policies, regulations and the shortage of experienced staff limits senior housing
development in China.
While the senior housing industry has matured for decades in U.S. Many Chinese developers and
operators are trying to import the U.S. practices into China's context. At the same time, U.S.
senior housing professionals are looking for business opportunities in China. Will U.S. style
product be accepted in China market? There is no doubt that a successful project must meet the
needs and desires of the local market. The best practice may be to learn China's unique market
dynamic, study the essential elements that foster U.S senior housing industry, and then adapt
U.S. model to the China context with a degree of flexibility.
1.2 Research Methodology
Firstly, I conducted a literature review of books, thesis, industry reports, policies and regulations.
This literature review helps us understand the history of senior housing development and its
social background, and insures a knowledge of the broad context of senior housing.
6
Secondly, I conducted interviews with industry people, including investors, developers, operators
and other players. These interviews have helped me collect the first-hand information, and
provided an understanding of the difference between the U.S. and China's senior care industry
from a professional perspective.
Third, I did field trips to representative projects and do interviews to residents who live in senior
communities. Personal field trips helped me verify the credibility of the information I obtained
from industry players.
1.2 Research Objective
China's senior housing market is an untapped market as well as an immature one. In this paper, I
analyze the opportunities in the Chinese senior housing market, look at the strengths and
weaknesses of the whole industry, and study the feasibility of the application of the U.S model to
China's market. The objective of my study is to help industry players learn about China's senior
housing market and find a practical way to develop it.
7
Chapter 11
China Senior Housing Market - An Untapped Market
2.1. Demographic Background
As well as having the world's largest population with 1.3 billion, China also has one of the fastest
ageing rates. Declining fertility rates and increased longevity have tilted China's demographic
balance towards a rapidly aging population. By the end of 2014, the total number of Chinese
population at the mainland reached 1,367.82 million. The number of people aged 60 and above
reached 212.42 million, 15.5% of national population. The number of people aged 65 and above
reached 137.55 million, 10.1% of national population.
Figure 2.1: Population and Its Composition by the end of 2014
Populaton
(Year-end figure)
Item
10.000 persons)
23957
91583
100.0
54.77
45-23
512
48.8
175
67 0
Aged 60 and above
21242
15.5
Of which Aged 65 and above
13755
10.1
136782
74916
61866
70079
66703
National Total
Of which Urban
Rural
Of which Male
Female
Ofwhich Aged 0-15 (undertheageof16)
Aged 16-59 (under the age of 60)
Source: National Bureau of Statistics of China. February 26, 2015
The segment of people aged 60 years and above will grow very rapidly in China. The number of
"silver" population is predicted to reach to 248 million by 2020, accounting for 17 percent of the
country's total. And this number will peak to 440 million by 2050, accounting for roughly 34
percent of the country's total population.
[1]
The ratio of the population aged 65 years or over to
the population aged 15-64 was 11.4 % in 2010. This ratio will achieve a level of 23.8% in 2030,
39% in 2050, and 49.8% in 2100.
1 Data from China National Committee on Aging (CNCA)
8
Figure 2.2 China Population Dependency Ratio Prospects
2020
2015
2010
2100
2075
2050
2030
Median age (years)
34.6
36.0
37.7
42.1
46.3
47.1
46.9
Total dependency ratio (a)
36.0
38.2
42.7
47.2
63.0
71.6
76.6
Child dependency ratio (b)
24.7
25.1
26.0
23.4
24.0
25.4
26.8
Old-age dependency ratio (c)
11.4
13.1
16.7
23.8
39.0
46.2
49.8
(a) The total dependency ratio is the ratio of the population aged 0-14 and that aged 65+ to the population
aged 15-64. They are presented as number of dependants per 100 persons of working age (15-64)
(b) The child dependency ratio is the ratio of the population aged 0-14 to the population aged 15-64. They
are presented as number of dependants per 100 persons of working age (15-64)
(c) The old-age dependency ratio is the ratio of the population aged 65 years or over to the population
aged 15-64. They are presented as number of dependants per 100 persons of working age (15-64)
Figure 2.3: China Population by Age Groups and Sex
2100
2050
100
I
100
Males
Females
Males
Females
90
80
830
70
70
60
50
50
40
40
30
30
20
23
10
10
0
10
0
100
'50
50
100
100
53
0
Source: United Nations Department of Economic and Social Affairs, Population Division, World
Population Prospects: The 2012 Revision, Volume II: Demographic Profiles
9
50
1lo
2.2 Social Background
As a result of the one-child policy, Chinese fertility has kept falling since 1980s. Nowadays,
China is among the countries with lowest fertilities in the world. On the other hand, life
expectancy keeps rising as living conditions continue to improve. The combination of low
fertility and longer life spans exerts great pressure to the quality of elderly care.
Reported and projected number of births, China 1980-2050
Figure 2.4:
30
-Reponed
Proected
12000. 1suuimouj
20
2006. 16 uniflioni
10-
1990
1980
2000
2020
2010
2030
2040
2050
Sources: Fertility prospects in China, United Nations, Population Division Expert Paper No.201 1/1
Figure 2.5:
Life Expectancy at Birth by sex in China
75
r'o
Female
r5
45
40
2050
1902000
2100
World
Source: United Nations Department of Economic and Social Affairs, Population Division,
Population Prospects: The 2012 Revision, Volume II: Demographic Profiles
10
Influenced by One-Child population restrictive policy, Chinese families have been undergoing
the most dramatic change in history. A new family structure known as 4-2-1 where a family
consists of four older people (paternal and maternal grandparents), two parents, and a single
child, currently dominates most of Chinese families. As a result, young Chinese couples have to
shoulder the responsibility of supporting four seniors as well as raising one child.
In modern 4-2-1 family, grandparents often help to look after their grandchild. Both spouses in
the young couple work to pay for the high living expense in cities. Even though grandparents are
in good health now and can help with housekeeping, in the foreseeable future there will be need
of more manpower to take care of them. It is impossible for a working couples to cater to four
aging parents as well as taking care of their own child. Some 4-2-1 urban families hire maids to
help care for elders, but most of those maids are unskilled women from the countryside. They
never received professional training and are unable to care properly senior people with medical
and mental care needs. The new family structure therefore poses a new challenge for the
provision elderly care. The traditional elderly care system, which relied on family members, is
facing immense pressure.
Another social change influencing elderly care is the increased urbanization of China.
Urbanization has left more and more of the countryside's elderly population alone to take care of
themselves, as the younger generations leave their hometowns for education and employment.
Since China conducted their Reform and Opening-up Policy in 1978, the urban population has
increased from 170 million to 730 million by the end of 2010. The urbanization rate has
increased from 17.9% to 53.7%, and this number keeps growing and will reach 60% by 2020.
Millions of young people flow into cities and settle down far from their parents, resulting in an
Empty Nest phenomenon in rural areas. Even when elders move to the cities with their children,
they are not used to a metropolitan living style. Most of them are often left alone at home during
11
the day because their children are too busy to spend time with them. Nowadays, arguably,
Chinese families have become grayer and more isolated. The population of elderly people aged
80 years and above will reach to 108 million by 2050. Half of this "Silver" segment population
will live alone.
[2]
Figure 2.6:
Urbanization in China from 1978-2010
1978
2010
193
658
Of which: Cities with more than 10 million population
0
6
Of which: Cities with 5 -10 million population
2
10
Of which: Cities with 3 - 5 million population
2
21
Of which: Cities with 1 - 3 million population
25
103
Of which: Cities with 0.5 - 1 million population
35
138
129
380
2173
19410
National Total Cities Number
Of which: Cities with less than 0.5 million population
National Total Towns Number
Source: China National New-type Urbanization Plan (2014-2020)
Figure 2.7:
Proportions of urban and rural population 1950 to 2050
100
-0--
Urban
-
Rural
40
70
60
10
20
19501960
2000
1980
2020
2040 2050
Source: United Nations, Department of Economic and Social Affairs, Population Division, World
Urbanization Prospects: The 2014 Revision.
[2] Data from China National Committee on Aging (CNCA)
12
2.3 Economic Background
The world has witnessed the economic miracle in China since the Chinese government
conducted their reform and opening policies in 1978. Nowadays, China is the world's
second-largest economy. In February 2015, the National Statistics Bureau of China released its
National Economic and Social Development Report. According to this report, the gross domestic
product (GDP) of 2014 reached 63,646.3 billion RMB. Compared to 365.02 billion RMB in
1978, China's GDP has multiplied by 174 times in last 36 years.
With national GDP growing, the residents' income continues to rise. In 2014, the national per
capita disposable income was 20,167 RMB, an increase of 10.1 percent, or a real increase of 8.0
percent after deflating for price growth. Per-capita disposable income of urban households was
28,844 RMB, up by 9.0 percent, or a real growth of 6.8 percent. The median per capita
disposable income of urban households was 26,635 RMB, up by 10.3 percent. The per-capita
disposable income of rural residents was 10,489 RMB, up by 11.2 percent, or 9.2 percent in real
terms. The median per-capita disposable income of rural residents was 9,497 RMB, up by 12.7
percent. The national per capita consumption expenditure was 14,491 RMB, up by 9.6 percent,
or a real growth of 7.5 percent. The per-capita consumption expenditure of urban households was
19,968 RMB, up by 8.0 percent, or 5.8 percent in real terms. The per capita consumption
expenditure of rural residents was 8,383 RMB, up by 12.0 percent, or a real growth of 10.
Social security has made great progress. By the end of 2014, a total of 341.15 million people
participated in the urban basic pension program for staff and workers, a year-on-year increase of
18.97 million. A total of 501.07 million people participated in the basic pension insurance
program for urban and rural residents, an increase of 3.57 million. A total of 597.74 million
people participated in basic health insurance program, an increase of 27.02 million, of whom,
283.25 million people participated in basic health insurance program for staff and workers, a
13
year-on-year increase of 8.82 million, and 314.49 million people participated in programs for
residents, an increase of 18.20 million.
The public health and social services continue to make progress. By the end of 2014, there were
982,443 medical and health institutions in China, including 25,865 hospitals, 36,899 township
health centers, 34,264 community health service centers, 188,415 clinics, 646,044 village clinics,
3,491 epidemic disease prevention centers and 2,975 health institutions. There were 7.39 million
health workers in China, including 2.82 million practicing doctors and assistant practicing
doctors and 2.92 million registered nurses. The medical and health institutions in China
possessed 6.52 million beds, of which, hospitals possessed 4.84 million and township health
centers had 1.17 million.
By the end of 2014, there were altogether 38 thousand social welfare institutions of various
types, of which 34 thousand were elder-caring organizations. The social welfare institutions
provided 5.865 million beds, and 5.514 million of them were for senior caring. A total of 3.046
million inmates were accommodated, of which 2.887 million were for senior caring. There were
22 thousand community service centers and 114 thousand community service stations. Minimum
living allowances were granted to 18.802 million urban residents and 52.090 million rural
residents, and 5.295 million rural residents received five-guarantees supporting. Another 13.109
million needy people in urban areas were financed to participate in urban medical insurance
system, and 41.189 million needy people in rural areas were financed to participate in new rural
cooperative medical care system.
[31
Statistical Communique of the People's Republic of China on the 2014 National Economic and Social
Development, National Bureau of Statistics of China
[31
14
Although the China economy has slowed down after 2010, its growth rate has kept above 7%.
China's Miracle Economy is transiting to a New Normal Economy. China's government is trying
to steer the economy from the high-speed path towards a more sustainable growth path. In the
following years, the national economy will perform steadily under the new normal model with an
enhanced economic quality and improved people's livelihood. In the 18th CPC National
Congress, Chinese policymakers set a new economic goal: the economy should maintain
sustained and sound development. Major progress should be made in changing the growth model
towards a more balanced and sustainable economy. On the basis of 2010 GDP, China will double
its GDP and residents' income by 2020. [4] With such an optimistic economy forecast, Chinese
residents' income is expected to continue rising in the following years. As more households can
afford senior care service, more people would like to live in senior care communities.
[4]
The 18th CPC National Congress Report
15
Chapter III
China Senior Housing Market - An Immature Market
Although the Chinese senior housing market is undoubtedly appealing, industry players must
address several issues before step into this market because it is still in its infancy period
compared to other developed countries. Current senior housing development and operation in
China are largely unregulated. The market is untapped as well as an immature.
3.1 Social and Cultural Obstacles
Societal attitudes towards institutional senior care are not positive. For thousands of years,
China's families have relied on Confucian doctrine. Filial piety has a strong influence in Chinese
culture, and the motto of "bringing up sons to support parents in their old age" has been popular
for thousands of years. Chinese tradition advocates multi-generational households. Following
traditional practice, elderly people are dependent on their descendants for care. Therefore senior
care in China is family-based. It is considered utterly shameful for young generations not to take
care of their aging parents in Chinese culture, and most elderly people think of senior care
institution as their last option.
Another concern is the reputation of senior care institutions. Many elders and their children don't
trust senior care institutions. People often read negative news in the newspapers or in television
informing that elder people are abused in such institutions. Senior housing is largely unregulated
in current China. There are few administrative or professional agencies responsible for the
oversight of senior care providers. Especially in rural areas, accidents within senior communities
happen often. A fire broke out in a Senior Nursing Home in Lushan, Henan province on May 26,
2015 and thirty-eight elderly residents were killed. The fire was reportedly a result of an
electrical circuit problem. This tragic accident alarmed the whole nation. Some people worry that
16
their parents will suffer in senior care institutions. So they would rather leave their parents at
home than send them to professional care institutions.
3.2 Medical Insurance
Medical service are the prime factors that convince elderly people to enter an institution. But in
China medical insurance only can be claimed locally or regionally. It means that people cannot
get reimbursement if they receive medical treatment in other cities. Many cities in the north of
China have suffered from serious air pollution for many years, driving people to move to
southern cities. But it's a big challenge for elderly people who plan to move to other cities
because they will have to spend extra money on medical care. In 2014, the Ministry of Human
Resource and Social Security, Ministry of Finance and National Health and Family Planning
Commission jointly issued a document to promote the reform of basic medical security.
According to this document, basic medical reimbursement will be claimed within the province
area in 2015, and will be claimed at the national level in 2016.
[5]
This is very positive news for the senior housing market. However, relevant detailed regulations
are still in the making and some potential problems need to be resolved. The most striking
problem is the difference of medical insurance level between provinces. The first-tier cities like
Beijing and Shanghai are different with respect to other cities regarding to medical coverage.
Residents in first-tier cities are covered with higher insurance standards, because the local
economy is stronger than other cities. Some small cities like Kunshan in Jiangsu Province have
better medical insurance plans than others because their economies are stronger. Different
provinces have different policies on medical reimbursement percentages and medicine categories.
Solve the differences in medical reimbursement between developed areas and undeveloped ones
is the next challenge that the central government will need to address.
[51
The Guiding Opinions on Basic Medical Insurance Cross Cities Claims, December 2014
17
3.3 Land Policy
In China, the state owns all land. Corporates and individuals are only given the right to use the
land for specific purposes for a set period of time. Land use right is classified in five categories.
There are maximum tenure period defined for granted land-use rights depending on how the land
will be used. For residential estates, the maximum term is 70 years. For land in industrial,
educational, scientific and technological, cultural, health, sports, comprehensive, or other uses,
the maximum grant period should be no longer than 50 years. For land of commercial, tourist
and recreational use, the maximum term is 40 years.
Figure 3.1: Land Usage Category and Term
Land Use Purpose
Maximum Tenure (Years)
Residential
70
Industrial
50
Educational, Scientific, Cultural, Public health and Sports
50
Commercial, Tourism or Entertainment
40
Other purposes
50
The nature and type of land use right are important because they determine development costs.
For a profit-oriented business, the developer is only allowed to acquire land-use rights by
purchase. On the contrary, a non-profit organization obtains allocated land from local
governments for free.
Figure 3.2: Land Acquisition Ways and Cost Comparison
Land Acquisition Way
Cost
Administration allocation
No cost
Agreement through consultations
Land transfer
Invitation to bid
Auction
18
Figure 3.3: Characteristics of Land Acquisition
Business
Land Cost
Possibility of
Restrictions on
acquiring
operating
Subject to market price
Less restricted
Land Tenure
Mode
Depends on land
Profit
Higher
use purpose
Subject to willingness
Non-profit
Lower
50 years
More restricted
of local governments
The cost of land transfers is, of course, significantly higher than direct land allocation. In
addition, the development cost of Senior Housing is much higher than typical residential
housing, because senior care facilities' operations require larger outlays. If profit-oriented
business developers cannot decrease their land acquisition cost, they will not be willing to
develop senior housing. For profit-oriented businesses, there are no laws and regulations to
define a separate Senior Housing land category, and therefore no specific land supply devoted to
the Senior Housing market. The acquisition cost of residential and commercial land is high, so
developers have to turn around new properties as soon as possible in order to balance their
capital structure. But the value of a senior housing project lies on service and its capital return
period is much longer. Thus, developers are not willing to develop senior communities on
residential and commercial land. The high cost of the land bids in the auctions keeps many
developers away from senior housing.
In 2014, the Ministry of Land and Resources of China issued anew set of supportive land
policies geared to promoting senior housing development. According to the new policies,
non-profit senior institutions are entitled to separate administrative allocations and zero land
cost. In the case of or-profit senior community developments, the government encourages
developers to rent land or acquire land by negotiation agreements with local governments, rather
19
than competing with other uses in the auction process. E61 The market results of this new policy
have not become obvious till now. There is no doubt that, as the government regulation and
enforcement on the new land-use policy becomes better defined, more and more developers will
get in senior housing development.
3.4 Financing Model
Lack of financing limits the growth of senior care projects. The property development costs for
senior housing are more similar to multifamily residential and 3-star hotels. The cost is higher
than typical residential or more modest hotel properties because of the infrastructure required in
a senior care facility cost and the daily operation expenses. From land acquisition to project
completion, development usually takes at least two to three years in China, and cash flow only
come from operation revenues ex post. Such a long payback period increases the investment risk.
In China, bank loans are the main capital source for real estate development. Banks often require
land use rights as the collateral. Non-profit senior housing projects are entitled to administration
land allocations and the land cost is zero. However, banks don't accept such administration
allocations of land use rights as collateral. Profit-oriented senior housing projects are not entitled
to administrative land allocations, and the land for this kind of projects is usually residential and
commercial. Banks do accept such land as collateral, but assess senior housing project at
higher-risk levels since, their investment return periods are much longer than typical residential
properties. High-risk means higher loan rates. Therefore it is difficult for developers to get
secured lending at a good interest rate from a bank, exerting great pressure for senior housing
development. Chinese developers are now looking for other financing channels alternative to
bank loans.
16]
The Guiding Opinion on Utilization of Land Use Right for Senior Care Facility, April 2014
20
Insurance capital has flown into the housing market in recent years. Tai Kang Insurance, one of
the largest insurance companies in China, is the first insurance company to develop CCRC
retirement communities in China. Ping An Insurance invests in senior housing development via
its wholly owned subsidiary Ping An Real Estate Company. In late 2014, the Ministry of
Commerce and the Ministry of Civil Affairs of China jointly issued the "Announcement on
Encouraging Foreign Investors to Establish For-Profit Senior Care Institutions and Engage in
Senior Care Services in China." Through this Announcement, the Chinese government
encouraged more foreign investors to set up for-profit senior care institutions in China. Foreign
entities will be treated equally to domestic entities in terms of tax and fee preferential treatments.
With the announcement, it is expected that foreign capital will flow into China's senior housing
market.
Although more capital sources add into senior housing market, the financing options are very
limited in public markets. As there have been no REITs in mainland China, many Chinese
developers are planning to use Crowdfunding to finance their projects. In June 12, 2015, China's
biggest commercial property developer Dalian Wanda Group launched the first commercial
property crowdfunding project in China. Dalian Wanda Group obtained US$ 508 million by
Crowdfunding to invest on its commercial project. Crowdfunding provides an alternative method
for developers to obtain equity investment, and also provides individual investors with the
opportunity for equity investment in commercial real estate. Crowdfunding is currently used in
commercial and residential projects. It is perhaps the potential way for financing senior housing
development in China.
3.5 Operation Model
Developers acquire profit from land premium, product sales, and service fees. In China, the
choice of operation model depends on the land-use right. If the land has a residential or
21
commercial use, the property sitting on the land can be sold. In terms of other types of land use,
such as industrial, with a use right with a 50 years' term, the property on the land cannot be sold.
Therefore, the land use right and its tenure decide the operation model. There are three main
types of operating models in the Chinese senior-living property market.
*
Pure Leasing
In this model, developers hold properties for the long-term. The profit comes from operational
revenue. This model requires a strong capital commitment, powerful financial support, and a
highly professional operation team. To decrease the capital pressure, operators often require
potential residents to pay entry fees as deposits. In general, the fee structure consists of two parts:
entry fee or membership fee, and a monthly service fee. Fees vary greatly depending upon the
type of contract that residents choose. This model is mostly applied in high-end senior
communities in China. The example is Star Castle Senior Living Community in Shanghai.
0
Build and Sell
Build and sell is essentially the same as an ordinary residential development from an investor's
point of view since they usually do not manage the asset. This model has the shortest payback
period. The properties are often build on residential or commercial land, and entitled to be sold to
individual buyers. Compared to typical residential communities, senior communities are
equipped with senior care facilities. This kind of property often locates on the outskirts of a city,
and potential residents typically prefer it for its natural environment. The target customers are
high-class elderly customers and some middle-age customers. The middle-age generation
purchases senior apartments for their elderly parents, as well as vacation apartments for their
own. The example is Wuzhen Graceland in Zhejiang Province, China.
22
*
Sell and Leasing
This is an operating model that is a hybrid of build and sell and pure leasing. This model offers a
quicker capital return period than pure leasing. This is a good business model for those
developers who are in transition from ordinary residential development to senior housing
development. Partial property sales relieve capital pressure and financial risk. Meanwhile,
investors can enjoy long-term cash flow. In general, 30% of the property is leased and 70% is
sold in such a project. An example of this structure is Sun City in Beijing.
Figure 3.4: Comparison of Operation Models
Operation
Advantages
Disadvantages
Model
Long-term operation revenue,
Occupy high proportion of capital, long
improve team's operating ability. In
payback period, require powerful
Pure Leasing
general, the fee structures consist of
financing support and the professional
entry fee or membership fee and
operation team, high risk.
monthly service fee.
Partial property sale relieves capital
Need to maintain a liquid reserve to
pressure, less risk, long-term cash
cover both debt service and operating
flow.
expenses, middle risk
No operation risk, short payback
Cannot acquire long-term cash flow and
period, least risk in three models
project premium profit
Sell and
Leasing
Build and Sell
Although Chinese private investors are interested in senior care housing nroiects, they fhcus on
property premium rather than treating this as a service-oriented business. Many Chinese
companies that are interested in developing senior housing projects are real estate developers.
They are doing a good job in attracting clients to their facilities based on their physical appeal,
but are less based on service. They build and sell to make a quick financial return.
23
3.6 Regulations and Laws
Before 2000, the senior care industry drew less public attention in China. From land acquisition
to operation, there was not a definite set of regulations to follow. In the 2000s, China's
rapidly-aging population has driven Chinese policy makers to pay more attention to the elderly
care sector. The government promulgated a series of regulations to promote elderly care. There
were several milestones in the elderly-care regulatory framework at the national level.
Opinion for Accelerating the Development of Senior Care Industry
In 2006, the central government released the "Opinion for Accelerating the Development of
Senior Care Industry". In this document, the central government indicated the importance of the
senior care industry and proposed six goals.
* To strengthen the social welfare and develop comprehensive medical insurance
" To encourage private capital investment into senior care institutions
To develop home and community-based services for elderly
e
To develop hospice care
*
To promote senior-care facility development
* To strengthen the provision of training and education for professional staff
12th Five-Year Plan on the Development of Chinese Senior Care
In 2011, the State Council promulgated the "12th Five-Year Plan on the Development of Chinese
Senior Care". This is a national guideline and development strategy for elderly care. In this plan,
elderly mental care was added to governmental policy.
*
It relaxes norms for land usage and resources for elderly care, lowering barriers to entry
-
It provides government subsidies and allowances
24
Implementation of "Opinions on Encouraging and Guiding Private Capital to Invest in
Elderly Service Industry."
In 2011, the Ministry of Civil Affairs released the "Implementation Opinions on Encouraging
and Guiding Private Capital to Invest in Elderly Service Industry". The objectives of this
document were defines thus:
" To encourage private investors to run elderly care facilities, including senior apartments,
nursing homes and recreation centers
-
To provide government subsidies and tax preferential treatment
e
To expand the funding channels and develop innovative financial products
-
To encourage private investors to lease up currently public institutions, and reallocate and
optimize resources overall
Opinions on Accelerating the Development of the Elderly Care Industry
In 2013, the State Council promulgated the "Opinions on Accelerating the Development of the
Elderly Care Industry", and pointed out six goals.
e
To add consideration to public healthcare infrastructures in the process of city planning
e
To establish a service network for senior home care
e
To encourage private-sector players to participate in the management and operations of
elderly care institutions
-
To promote the elderly care industry in rural areas
e
To cultivate the elderly-person consumer market
e
To promote the collaboration of public hospitals and elderly care institutions, and to
develop a comprehensive medical insurance system
To achieve the above goals, the state council issued some supportive policies, including:
25
* Expansion of the funding channel for elderly care and encouragement of new financial
products/services
* Land supply support
*
Tax exemptions
*
Government subsidies
*
To strengthen the training and education for professional staff
*
To encourage charities to participate in the elderly-care industry
Announcement on Encouraging Foreign Investors to Establish For-Profit Senior Care
Institutions and Engage in Senior Care Services in China
In 2014, the Ministry of Commerce and the Ministry of Civil Affairs of China jointly issued the
"Announcement on Encouraging Foreign Investors to Establish For-Profit Senior Care
Institutions and Engage in Senior Care Services in China." The announcement is intended to:
* Treat foreign-invested company equally as domestic entities in terms of tax and fee
preferential treatments
-
Simplify the procedures to establish foreign-invested senior care institutions, clarify the
approval and registry measures
e
Approve foreign-invested senior care institutions to provide medical services
e
Encourage foreign investors to participate in the reform of state-run senior care
institutions
All these national regulations are general guidelines, without detailed provisions and standards.
In China, laws and regulations are promulgated from the central government. Local governments
are responsible for adhering to national policies. This structure provides local authorities much
room to implement policies in a flexible way that best fits local interests.
26
The most evident conflict in the current regulatory structure is on land profit. The central
government takes economic growth as the top priority, imposing great pressure on local
governments. However, the Chinese economy has been dependent on real estate investment for
decades. Local governments regard real estate as one of the most important economic engines.
Land is the base of real estate development.
In developed areas like Beijing, Shanghai and Guangzhou, local governments are reluctant to
supply land to elderly care institutions. Most elderly care institutions in China are registered as
non-profit entities in order to be exempt of business tax. Given the land scarcity in first-tier cities
and the high tax revenues coming from real estate, local governments have little incentive to
parcel land to nonprofit entities, which do not generate tax revenue and contribute little to local
GDP. Therefore, local governments are inclined to profit-oriented businesses when approving
land deals.
In less developed areas, local regulatory enforcement and supervision is weak. Developers find it
much easier to obtain land cheaply for senior care institutions. If they are entitled to
administrative allocations, some developers acquire land at almost zero cost. Actually they
sometimes end up doing residential or commercial development, not elderly-care institution
development. In order to avoid punishment, some developers add elderly facilities in residential
communities, but never provide elderly care service. A lot of "fake" elderly communities were
built in some provinces. In these areas, senior housing development becomes a gimmick to
secure cheap land.
In China, many regulations for the senior-care industry are only under discussion or being
drafted, and most of the current regulations are very broad and general, resulting in different
practices and interpretations from local authorities. Throughout the development process, from
27
land acquisition to asset management, developers and operators still have to rely heavily on
negotiations with the local governments, in order to clearly define the realm within which their
businesses will operate, as well as the potential preferential treatment to be offered.
The regulations are not transparent and enforceable. In terms of operating regulations, the
Ministry of Civil Affairs promulgated the "Standards of Social Welfare Institution for The
Elderly" in 2001, which is the only nationwide protocol available. However, this document
offers only general regulatory guidelines and the specific requirements are vague. When it comes
to enforcement, important decisions still depend on the local government's supervision.
3.7 Professional Workforce
In 2015 the Chinese elderly care market value will achieve 450 billion RMB, and the demand for
elderly care workforce will exceed 5 million.
[71
Compared to the rapidly aging population,
elderly care labor's shortage is worsening. Most frontline elderly-care workers are poorly
educated. Their knowledge and skills are not at professional standards and they are unqualified.
In the coming five to ten years, elderly service will face great pressure. The education, training,
evaluation and incentive policies for elderly-care staff will directly influence the elderly-care
industry in China.
[8]
There is a huge gap between the market demand for elderly-care
professionals and supply. China needs a huge development in the sizes of the populations of
frontline elderly care workers, and middle management of elderly-care programs and facilities.
Senior care workers work long hours and use a lot of energy every day. Unfortunately, senior
care workers' social status is still poor in China. Therefore, younger generations with more
opportunities are not willing to choose senior care as a career.
Five-Year Plan on the Development of Chinese Senior Care, 2011
Zheng, Vice Director, Department of Social Welfare and Charity, Ministry of Civil Affairs,
May 2015
[7112th
[ 81Bingliang
28
In senior care work, training is required, from basic assistance and nursing to necessary medical
support. And care providers have to learn the knowledge and skills to look after elderly's mental
health. But there is no pipeline of trained nurses, physical and rehabilitation specialists, and
doctors for senior care. The Chinese government advocates training programs in the elderly care
sector, and plans to solve workforce shortages by the means of more college education and
industry training. In 2014, the Ministry of Education and other nine departments released the
"Opinions on Accelerating the Elderly Care Education and Training". In 2015, the Ministry of
Education began to promote elderly-care education in professional colleges. These policies will
definitely increment the senior care labor pool. But the elderly care education and training is at
very early stage in China, and is weak compared to the U.S.
The demand for qualified and experienced staff will continue to outpace supply dramatically in
the next decade. The lack of professionals is a serious concern. Currently, in China, the pay for
senior care workers is very low, so there is little incentive for workers to improve their skills or
acquire knowledge. This situation needs to change. Current education and training programs are
not enough. Chinese policymakers should make the senior-care jobs competitively attractive
compared to other occupations in terms of salary. A big workforce demand and a limited supply
will otherwise limit the senior housing industry in China. Senior housing investors and operators
should pay attention to this issue when stepping into the Chinese senior housing market.
29
Chapter IV Implications of U.S. Senior Care Industry to China
4.1 Health Care REITs
Health care REITs play an essential role in the U.S. real estate capital market. The REIT
investment vehicle was created by United States Congress in 1960 through legislation called the
Real Estate Investment Trust Act, which authorized a real estate ownership structure with tax
treatment similar to that of mutual funds; a pass-through entity that distributes most of its
earnings and capital gains.
REITs offer all investors, not just the big players, a liquid way to invest in a diversified portfolio
of commercial property. They provide a means for many investors to achieve the benefits
associated with real estate investment, for whom direct equity investment is beyond their means
or infeasible. Shares of public REITs trade on organized exchanges. Perhaps the most notable
feature of REITs as compared to most other types of stocks is that REITs are exempt from
corporate income tax. The rationale for this exemption is that REITs are viewed as investment
vehicles, similar to mutual funds. Exemption from corporate-level taxation enables REIT
shareholders to avoid the double taxation of corporate income that characterizes most stocks.
[9]
In the U.S., senior housing development conforms an ecosystem involving developers, operators,
REITs, and private equity. REITs play an essential role in this ecosystem. There are fifteen
Health Care REITs in U.S. public market as of May 2015. Like all REITs, these firms are not
subject to federal income tax so that they can distribute 90% of their taxable income to
shareholders. Therefore, these stocks offer dividend yields above the market average level.
[9] Commercial Real Estate Analysis & Investments, 2nd edition, by David M. Geltner , Norman G.
Miller, Jim Clayton , Piet Eichholtz
30
Figure 4.1: U.S. Health Care REITs Return Rate
1 Year
3 Year
5 Year
Dividend
Market Cap
Sector
Constituents Return
Return
Return
Yield
($M)
Health Care
15
10.7%
12.7%
4.87
94,072.9
9.6%
Source: FTSE NAREIT Equity Health Care (Data as of May 2, 2015)
Figure 4.2: REITs in Health Care Sector
Company Name
Ticker
Divide Yield (%)
Care Trust REIT
CTRE
2.1
HCP
HCP
5.23
Healthcare REIT
HCN
4.27
Healthcare Realty Trust
HR
4.32
Healthcare Trust Of America Inc
HTA
4.16
LTC Properties
LTC
4.43
Medical Properties Trust
MPW
5.97
National Health Investors
NHI
4.79
New Senior Investment Group
SNR
1.38
Omega Healthcare Investors
OHI
5.32
Physicians Realty Trust
DOC
5.11
Sabra Health Care REIT
SBRA
4.71
Senior Housing Properties Trust
SNH
7.03
Universal Health Rlty Income
UHT
4.52
Ventas Inc
VTR
3.17
Source: REITWatch Monthly Statistical Report on the Real Estate Investment Trust Industry (Data as of
March 31, 2015)
31
Figure 4.3: 50 Largest U.S. Seniors Housing Owners as of June 1, 2014
2014 Rank
Company
2014 Properties
2014 Units
1
Ventas Inc.
695
61,938
2
Health Care REIT Inc.
572
56,479
3
Brookdale Senior Living
555
49,342
4
HCP Inc.
444
45,580
5
Boston Capital
512
30,794
6
Senior Housing Properties Trust
217
26,671
7
Holiday Retirement
167
20,601
8
Emeritus Senior Living
211
18,207
9
Evangelical Lutheran Good Samaritan Society
124
15,650
10
Senior Lifestyle Corporation
138
14,448
Figure 4.4: 50 Largest U.S. Seniors Housing Operators as of June 1, 2014
2014 Rank
Company
2014 Properties
2014 Units
1
Brookdale Senior Living
647
66,333
2
Emeritus Senior Living
499
45,296
3
Holiday Retirement
307
37,488
4
LCS
119
31,792
5
Five Star Senior Living
226
27,348
6
Sunrise Senior Living LLC
246
22,700
7
Erickson Living
17
20,118
8
Atria Senior Living Inc.
150
17,469
9
Senior Lifestyle Corporation
163
16,811
10
Evangelical Lutheran Good Samaritan Society
132
16,336
Source: American Senior Housing Association, The 2014 ASHA 50
32
Health Care REITs own and operate properties including hospitals, senior housing facilities,
skilled nursing facilities, and other medical office buildings. Some of Health Care REITs rank in
for about
top U.S. Seniors Housing Owners and Operators. Senior housing currently accounts
half of the net operating income (NOI) of the three largest health care REITs, Ventas, Health
Care REIT and HCP.
NOI by Proprty Type'
,
M
4
IT1 P'ER
*
4
"
Ventas
e
T INC
Health Care REIT
HOSPITAL
(Data as of 3/31/2015)
OUTPA
E NT
15%
OP5RATC,
35%/
21
* HCP
(Based on Investment Portfolio as of 3/31/15
and annualized 1Q 2015 Portfolio Income)
33
28%
4.2 Tailored Market
In U.S. senior care market, real estate products are well defined and properly designed to meet
the tailored demand. Many options are available to meet the needs of target customers.
-
Independent senior living communities
Independent senior living communities cater to seniors who are self-sufficient and who do not
need hands-on care. Residents live in fully equipped private apartments. These communities
usually offer a broad range of intellectual, physical and social activities. These communities
offer a carefree lifestyle, free of many potentially difficult or burdensome responsibilities, such
as meal preparation, housekeeping and laundry and house maintenance.
* Assisted living communities
Assisted living communities provide housing and care to seniors who may need some assistance
with daily tasks, but who do not require the skilled care provided at a nursing home. Assistance
with medications, activities of daily living, meals and housekeeping are routinely provided.
Three meals per day are also served in a central dining room. Staff is available 24 hours per day
for additional safety. Social activities and scheduled transportation are also available in most
communities.
e
Residential care homes
Residential care homes are houses in neighborhoods that have been adapted to take care of a
limited number of residents. They offer personalized service to a small group of adults. They are
private homes that serve residents who live together and receive care from live-in caretakers.
These homes offer assisted care services for seniors who want a more intimate, home-like
community. Assistance with activities of daily living such as bathing and dressing are typically
provided. Amenities and nursing services vary greatly between homes.
34
0
Nursing homes
Nursing homes are for seniors who require 24-hour monitoring and medical assistance. Nursing
home patients typically suffer from severe or debilitating physical or mental illnesses, so they are
unable to care for themselves. Nursing homes offer engaging resident activities, skilled medical
attention-such as physical therapists and licensed physicians, as well as gourmet dining services.
* Respite Care
Respite care typically refers to a short-term stay at a senior community, such as an assisted living
or memory care community. This type of care can also sometimes refer to in-home caregiving
services used for only a short period.
e
Memory Care
Memory care, is often provided in a secure area of an assisted living community or nursing home
usually in a separate floor or wing. The secure aspect of memory care communities is intended to
prevent residents from wandering off and becoming lost, which is a common and dangerous
symptom of Alzheimer's disease and dementia. The security usually takes the form of alarmed
exit doors rather than locked exit doors. Residents usually live in semi-private apartments or
private rooms and have structured activities conducted by staff members trained specifically
trained to care for those with Alzheimer's or other kinds of dementia.
In this highly tailored market, consulting services are also highly developed. Specialists are
available to provide expertise to help elders finding the right products to match their needs.
Senior Housing Consultants help guide builders, investors and developers through the complex
process of developing senior housing. There is a consultation process built from the ground up to
support each phase, from Market Assessment through Financial Feasibility and Business
Development to the on-going management of daily operations. Senior Care Advisors help people
35
find the senior living community that best meets their needs. Senior Financial Advisors help
people determine the monthly budget that is available for care, and decide how to pay for care
that won't be covered by medical insurance.
Figure 4.5: The Characteristics of Senior Housing Types and Care Types
Varies
Vane-
$604215
per day
$90-1250
per day
None
1+
1-3
Yes
Vane,
Vane,
Yes
Vane:
Ye:
Vanes
No
Most Yes
Ye:;
Most Ye:
Ye:
Ye;
Vane:
Yes
Ye-
Yes
Yes
Ye:
Yes
Vane,
Yes
No
Vanes
Ye-
Vane-
Vanes
Ye:
Yes
Varne,
No
No
Vane:
Vales
Vane,
Ye:
Vane-
Varie:
Vanes
No
No
Most Yes
Yes
Most Yes
Ye:
Yes
Ye-
Mot Yes
Vanes
Vane:
Most Yes
Yes
Most Yes
Ye:
Yes
Ye
Most Yes
Ye.
No
Yes
Yes
Vane:
No
Vane:
Varies
Vanes
Ye:
No
Ye:
Ye:
Yes
Yes
Ye:
No
Most Yes
No
No
Ye,
Yes
Yes
Ye:
Yes
No
MostYes
S2.000-5.000
per month
$400-Si 900
per month
Meal Plan
None
3-
3+
3+
3+
No*
No
Yes
Yes
Yes
No
No
Valie:
Vane-
No
No
Most Ye:
No'
No
No
month
80
Varies
65
Option"
80
80
75
$3.500-56,600 S1 000-48.000
$10412S13,000
per month
per month
Source: A Place for Mom
36
Vanes
S600520-539
per month
per hour
4.3 Laws & Regulations
In U.S. senior housing industry is largely regulated at the state level. The regulatory framework
of the states contains common elements, but some states regulate industry more stringently.
Taking Florida and New York as examples, two states' laws have detailed requirements on
continuing care.
2013 Florida Statutes
Chapter 651 - CONTINUING CARE CONTRACTS
651.011 - Definitions.
651.012 - Exempted facility; written disclosure of exemption.
651.013 - Chapter exclusive; applicability of other laws.
651.014 - Insurance business not authorized.
651.015 - Administration; forms; fees; rules; fines.
651.018 - Administrative supervision.
651.019 - New financing, additional financing, or refinancing.
651.021 - Certificate of authority required.
651.022 - Provisional certificate of authority; application.
651.023 - Certificate of authority; application.
651.0235 - Validity of provisional certificates of authority and certificates of authority.
651.024 - Acquisition.
651.026 - Annual reports.
651.0261 - Quarterly statements.
651.028 - Accredited facilities.
651.033 - Escrow accounts.
651.035 - Minimum liquid reserve requirements.
651.051 - Maintenance of assets and records in state.
37
651.055 - Continuing care contracts; right to rescind.
651.057 - Continuing care at-home contracts.
651.061 - Dismissal or discharge of resident; refund.
651.065 - Waiver of statutory protection.
651.071 - Contracts as preferred claims on liquidation or receivership.
651.081 - Residents' council.
651.083 - Residents' rights.
651.085 - Quarterly meetings between residents and the governing body of the provider; resident
representation before the governing body of the provider.
651.091 - Availability, distribution, and posting of reports and records; requirement of full
disclosure.
651.095 - Advertisements; requirements; penalties.
651.105 - Examination and inspections.
651.106 - Grounds for discretionary refusal, suspension, or revocation of certificate of authority.
651.107 - Duration of suspension; obligations during suspension period; reinstatement.
651.108 - Administrative fines.
651.1081 - Remedies available in cases of unlawful sale.
651.111 - Requests for inspections.
651.114 - Delinquency proceedings; remedial rights.
651.1151 - Administrative, vendor, and management contracts.
651.116 - Delinquency proceedings; additional provisions.
651.117 - Order of liquidation; duties of the Department of Children and Family Services and the
Agency for Health Care Administration.
651.118 - Agency for Health Care Administration; certificates of need; sheltered beds;
community beds.
651.119 - Assistance to persons affected by closure due to liquidation or pending liquidation.
38
651.121 - Continuing Care Advisory Council.
651.123 - Alternative dispute resolution.
651.125 - Criminal penalties; injunctive relief.
651.13 - Civil action.
651.131 - Actions under prior law.
651.132 - Amendment or renewal of existing contracts.
651.134 - Investigatory records.
NY Code
Article 46: CONTINUING CARE RETIREMENT COMMUNITIES
Section 4600 Legislative findings and purpose.
Section 4601 Definitions.
Section 4602 Continuing care retirement community council; powers and duties.
Section 4603 Commissioner; powers and duties.
Section 4603 A Residential health care demonstration facilities.
Section 4604 Certificate of authority required; application and approval.
Section 4604 A Council approval required for industrial development agency financing in
connection with continuing care retirement communities.
Section 4605 Certificate of authority; authority of operator.
Section 4606 Initial disclosure statement.
Section 4607 Annual statement.
Section 4608 Continuing care retirement contract.
Section 4609 Withdrawal, death or dismissal of person; refund.
Section 4610 Entrance fee escrow account.
Section 4611 Reserves and supporting assets.
Section 4612 Residents' organizations.
39
Section 4613 Advertisements.
Section 4614 Audits.
Section 4615 Revocation, suspension or annulment of certificate of authority.
Section 4616 Appointment of a caretaker.
Section 4617 Receiverships.
Section 4618 Civil action.
Section 4619 Criminal penalties.
Section 4620 Separability.
Section 4621 Priority reservation agreements; prior to obtaining a certificate of authority.
Section 4622 Priority reservation agreements; after obtaining a certificate of authority.
Section 4623 Long term care insurance for continuing care retirement contracts.
Section 4624 Continuing care retirement communities making assurances regarding long term
care.
By comparing continuing care regulatory requirements in Florida and New York, we can
summary the common elements of U.S continuing care regulatory framework.
* Authority To Operate
Each state requires continuing care providers to have operating certificates. The state agencies
are responsible for issuing certificates of authority. Each state requires at least one state agency
to oversee continuing care communities.
*
Financial Disclosure Requirements
States require continuing care providers to provide detailed financial statements to the pertinent
regulatory agency before they begin to operate. The statements must include any financial risks a
40
potential resident could face. The copies of these statements are also required to provide to
prospective residents.
* Ongoing Annual Report
States require continuing care providers to submit annual financial statements after opening.
The reports show the community's operating condition. The financial disclosure statements
include annual revenue and expense summaries
e
Minimum Liquid Reserves
States require continuing care providers to maintain in escrow a minimum liquid reserve to cover
both debt service and operating expenses.
e
Examinations and Inspections
State administrative agencies conduct routine examinations periodically. The results of
examinations and inspections shall be open to public.
e
Ability To Cancel Contract
States allow prospective residents to cancel their contracts within a certain amount of time and
receive all or most of their money back.
* Violation
States establish penalties for violations, including both civil and criminal remedies
e
Residents Rights
Some states establish bills of rights for senior residents. No resident of any facility shall be
deprived of any civil or legal rights, benefits, or privileges guaranteed by law, by the State
41
Constitution, or by the United States Constitution solely by reason of status as a resident of a
facility.
4.4 Professional Workforce Supply
U.S. also faces a shortage in its senior care workforce. Facing such care worker shortage, U.S.
policymakers and employers are working together to make the care occupations competitively
attractive compared to other occupations. In 2013 the U.S. Department of Labor announced a
final rule extending the Fair Labor Standards Act's minimum wage and overtime protections to
workers who provide home care assistance to elderly people and people with illnesses, injuries or
disabilities. The rule has been effective since Jan. 1, 2015. Nearly two million home health and
personal care workers benefit from this policy. This change will result in direct care workers
receiving the same basic protections already provided to most U.S. workers. It will also help
guarantee that those who rely on the assistance of direct care workers have access to consistent
and high-quality care from a stable and increasingly professional workforce.
42
Chapter V Senior Housing Cases Study
5.1 Brooksby Village
Address: 100 Brooksby Village Drive,
Peabody, Massachusetts, USA 01960
General Information
[10]
Brooksby Village is a full-service retirement community managed by Erickson Living.
It was opened in June 2000, located on Boston's North Shore, near to North Shore Mall,
units
Brooksby Farm and golf courses. Brooksby Village consists of a mix of independent living
ranging from studios to large two bedrooms. It also offer a range of assisted living units and
skilled nursing units that target specific needs.
Community Type
Units
Occupancy
Independent Community
1350
98%
Assisted Community
96
100%
Skilled Nursing Community
104
99%
Erickson Living is a nation-leading developer and manager of continuing care retirement
communities, ranking No. 7 in the largest U.S. Seniors Housing Operators in 2014. Erickson
Erickson
Living operates 19 communities in 10 states. 11 Continuing Care facilities managed by
Living have received the highest overall rating of five stars in U.S. News & World Report's
seventh annual Best Nursing Homes. Brooksby Village is one of these five stars rated
communities.
[101
43
*
Master Plan
Brooksby Village includes three residential neighborhoods, three clubhouses and Continuing
Care neighborhood.
win Court
*g
Cor
,snite way I
It
Cortdandcf
-r..
IN I
Iw
-m ----
Guest Pat kin
U"
.w
Guest Parking
,A
I
44
' Guest Parking
*
Floor Plan
Source: Brooksby Village
The Brighton (One bedroom, one bath)
I
I
Bedroom
11'11" x 12'10"
Living Area
12'0" x 17'8"
C
'P
C
Walk-In
Closet
DW
Bath
Kitchen
8'7" x 8'1"
W/D
45
The Georgetown (One bedroom, one bath with den)
1
F-
6
;V
4
Living Area
12'3" x 253"
Bedroom
11 '11" x 12'10"
CD
Den
11'2" x 8'11"
Walk-In
Closet
Kitchen
Bath
12'4" x 8'4"
.DW
-
W/D
46
The Gilbert (Extra large one bedroom, one bath with den)
I
-.
.I
I>
F_
Den
8'6" x 11'5"
Living Area
12'0" x 25'10"
Bedroom
11'10" x 14'5
-iW/D~
Walk-in
Closet
Kitchen
8'6" x 11'9"
Bath
Linen
47
The Fairmont (Large two bedroom, one bath)
I
-~
Bedroom
12'0" x 10'6"
Living Area
12'10" x 211"
Bedroom
12'1" x 13'0"
DW
K itchen
11'9" x 8'5"
ii
Walk-in
Closet
Bath
t
/
---------
48
W/D
The Jackson (Corner two bedroom, two bath)
Patio
Bedroom
11'6" x 14'10"
Living Area
13'1" x 19'0
Kitchen
128" x 10 1
Walk-In
Closet
DW
W/D
Bath
Bedroom
12'1" x 11'10"
Bath
49
The Kingston (Large two bedroom, two bath with recessed balcony)
~ET
Recessed Balcony
(Patio Unit Available)
V ~~ixA
I-
I~
r'
IF
Living Area
13'1" x 23'6"
Bedroom
11 7" x 11 2"
Bedroom
11'6" x 17'4"
I.
DW
SI
W/D
I
Kitchen
8'7 x8'1
Bath
Walk-in
Closet
Bath
50
The Lancaster (Corner two bedroom, two bath with sunroom and bay window)
Bedroom
17'1" x 11'4"
Bedroom
12'1" x 12'4"
*1
Walk-in
Closet
Walk-In
Closet
T*W/D
Sunroom
77" x 17'2"
Bath
Baf
-
4L
Kitchen
9B1" x 84"
IStorage
Living Area
25'1 "x 11 8
-74-
II
J
51
Studio
Studio
Deluxe Studio
-
-
rn-r~"
I
a edroom
8 ' x9'-10"
6
Bedroom
8'-1"x 13'-1
Living Room
8' x 9'-10"
Living Room/Dining Room
8'-1" x 13'-1
4.
4
1
U
41Bathroom
C
N
{_
BathroomX
N
Source: Brooksby Village Brochure
52
e
Pricing
90% Refundable Entrance Deposit
Monthly Service Package
(1) If residents decide to leave the
A Monthly Service Package covers all
community, 90% of deposit will be returned
regular bill, including:
to residents.
(2) If residents decide to spend the rest of
their life here, 90% of entrance deposit will
-
Utilities (except telephone)
-
Flexible dining plans
* Heating and air-conditioning costs
be returned to their heirs
-
Property taxes
-
Scheduled shuttle service to area
shopping and attractions
-
24-hour security and emergency first
response
-
Professional lawn care and grounds
upkeep
Figure 5.1: Brooksby Village 2015 Pricing Guideline 1
Assisted Care
Monthly packages range from $4,500 to $8,700
Entrance Deposit ranges from $119,000 to $250,000
Short-Term Rehabilitation
Medicare typically pays for short-term rehabilitation costs
Long-Term Care
$441 a day. Entrance Deposit $119,000
Respite Care
Cost depends on the services and the length of the stay
Memory Care
Monthly packages range from $7,120 to $7,470
Entrance Deposit ranges from $119,000 to $250,000
53
Figure 5.2: Brooksby Village 2015 Pricing Guideline 2
Studio
Starting at $114,000
$1,648
One bedroom, one bath
Starting at $170,000
$1,950
Extra large one bedroom, one bath
Starting at $210,000
$2,084
One bedroom, one bath with den
Starting at $263,000
$2,267
Two bedroom, one bath
Starting at $244,000
$2,380
Two bedroom, one and a half bath
Starting at $316,000
$2,534
Two bedroom, two bath
Starting at $336,000
$2,742
Extra large two bedroom, two bath
Starting at $455,000
$2,992
Second Person Monthly Service Package-$858. NO second person entrance deposit.
-
Level of Care
Brooksby Village is a full-service retirement community, providing a full of care on campus.
Figure 5.3: Brooksby Village Service
Rehab in Neighborhood
Offers inpatient and outpatient rehabilitation in campus
Continuing Care neighborhood. Therapists create the
customized plan to help residents achieve optimal results
and maintain the highest level of independence.
Assisted Care
Offers extra assistance with daily tasks like bathing,
meal planning and medication management.
Offers home care, respite care, long term nursing care
Customized Care
and memory care in Continuing Care neighborhood.
Individuals in these settings are supported by
professional staff members.
54
*
Medical Care
Brooksby Village provides medical care on campus. A full-time medical team services its
residents.
Figure 5.4: Brooksby Village Medical Service
On-Site Medical Center
The full-time medical staff at Brooksby. Village includes
board certified doctors and nurse practitioners. All are
specially trained to identify and treat the health needs of
older adults. Medicare and most other insurance plans are
accepted at the medical center
Visiting Specialists
Some of the area's most respected cardiologists,
urologists, dermatologists, orthopedists and chiropractors
have regular hours at Brooksby Village.
Emergency Medical
Full-time security staff is cross-trained in emergency
Response Team
medical response. If residents need assistance, these
professionals can reach.
55
5.2 Starcastle
Address: 858 Huanzhen Road South, Baoshan
District Shanghai, China 200436
e
Brand History
Starcastle is a new brand that was co-founded by U.S. and Chinese investors. Starcastle Senior
Living Services Ltd is a joint venture company between Fortress Investment Group and Fosun
Group, 50% share hold respectively.
Fortress Investment Group LLC (NYSE: FIG) is a global investment firm with approximately
$69.9 billion of assets under management as of March 31, 2015. Fortress runs senior living
facilities in the U.S. and Canada, and its private equity fund portfolio investments include
121
Brookdale Living 11 and Holiday Retirement - two of the largest senior-housing operators in
the US.
Fosun Group is a Chinese private-owned investment group based in Shanghai. Its business
includes four segments: insurance, industrial operations, investments and assets management.
Fosun intends to integrate its insurance and medical businesses into to senior care industry.
11I] Brookdale Living rank No.1 in "Largest U.S. Seniors Housing Operators as of June 2014" in
American Senior Housing Association annual report.
[121 Holiday Retirement rank No.3 in "Largest U.S. Seniors Housing Operators as of June 2014" in
American Senior Housing Association annual report.
56
Recently, Chinese developers have cooperated with U.S. operators to import the U.S Continuing
Care Retirement Community model into China's market. Some high-end senior communities
such as Starcastle have copied the U.S. operating model.
Fosun Group partners with Fortress Investment to promote senior living community in major
cities of China. Starcastle Shanghai is their first project. This joint venture company is trying to
establish Starcastle chain business and build the best senior care brand in China. Starcastle
integrates two companies' expertise. Fortress brings senior living investment and operating
expertise from its portfolio companies Brookdale Living and Holiday Retirement. Fosun
provides a deep understanding about China market as well as experience in real estate,
pharmaceuticals and healthcare.
*
General Information
Starcastle was opened in Shanghai in May of 2013, with 18000 square meters building area.
It consists of 189 independent living units and 30 assisted living units, from studios to large
two-bedrooms. It's a Continuing Care Retirement Community, offering a range of housing and
care service options. This project is positioned as high-end independent community with assisted
services. Thus, it appeals to elder people with a higher level of self-care ability. It has a 24 hours
full-time team to provide assistance with daily activities such as bathing, dressing or eating.
Currently the average occupancy rate of Starcastle is above 80%.
Community Type
Units
Occupancy
Independent Community
190
80%
Assisted Community
30
85%
57
e
Floor Plan
Studio
One bedroom
Two bedroom
58
e
Pricing
Living cost involves two segments: Entrance Fee and Monthly Fee. Monthly fee covers basic
services and meals. Residents can purchase additional services such as private transportation,
enhanced housekeeping, and additional in-home personal care services as desired.
Starcastle charges an entrance fee of 50,000 RMB and a monthly fee from 8,000 to 28,800 RMB.
The monthly rent for independent studio is from 8,000 to 10,000 RMB per month. The average
monthly rent for independent living unit is from 11000 to 15000 RMB per month, with rental for
the largest two-bed unit being 28800 RMB per month.
Monthly Fee
Entrance Fee
A Monthly Service Package covers basic services, including:
RMB 50,000.00
-
restaurant style dining ( three meals every day)
-
in-unit housekeeping
-
regularly scheduled shuttles
I
a wide range of activities
-
24-hour security and emergency first response
* Medical Care
There are no full-time medical providers in Starcastle. But it has established relationships with
public hospitals in Shanghai to provide support to residents. Visiting doctors from public
hospitals are invited
U 3Lar~dbLse
regularly. StarcastLie helps its residents to make appointments
with physicians. Although there are no professional full-time physicians in Starcastle, nurses in
Starcastle maintain a health file for each resident and accompany elderly people in patient visits.
59
e
Level of Care
Figure 5.5: Starcastle Senior Care Service
-
Maximize the independence of seniors through
education and support
Full Service Retirement Living
*
Offer meal packages
-
Offer social interaction
-
Provide some supervision from the staff
-
Provide round-the-clock health care service
i
* Provide direct assistance with everyday tasks, like
bathing, dressing and meals
Personalized Assisted Living
-
All meals provided
-
Trained staff available and monitoring 24 hours a day
*
Help residents maintain their dignity while aging
-
Specialized units for residents with Alzheimer's or
dementia
" Provide direct assistance with everyday tasks, like
Home Care
bathing, dressing and meals
* Provide trained staff to help with medical concerns
like medication management or just taking seniors to
doctor appointments
" Allow a person to maintain independence and stay in
their own home longer
60
5.3 Case Comparison
Starcastle is a good example of what the U.S. Continuing Care Retirement Community model
implies to the Chinese market. Starcastle is similar to Brooksby Village in program, unit design,
quality standards, service types, and pricing structure. The most significant difference between
two projects is the level of medical services. However, in my view, the most important factor and
the key to success for senior communities is medical care.
In China a total of 597.74 million people participated in basic health insurance program by the
end of 2014, of whom 283.25 million people participated in basic health insurance program for
workers, and 314.49 million people participated in insurance programs for residents.
[13]
There
were 13,343 public hospitals and 12,166 private hospitals in China by November of 2014. From
January to November of 2014, the number of patient visits to public hospitals was 2,350 million,
the number of patient visits to private hospitals was 280 million. [14] Public hospitals and clinics
provide 90 percent of the country's medical services. Private health care in China is not as
popular as in U.S. since China is still in the early stages of its economic and social development.
Chinese people still prefer to wait for hours in public hospitals to spend five minutes with a
physician rather than pay money to use a private medical service. This happens because the cost
of private health care is not covered by the national basic health insurance.
In contrast, in U.S., private medical treatment is widely accepted. Family physicians are devoted
to help people stay healthy, with an individualized plan of care. They are familiar with
individual's health history and lifestyle. They diagnose illnesses, provide routine health
screenings, and refer patients to specialists.
Data from National Bureau of Statistics of China, Statistical Communique of the People's Republic of
China on the 2014 National Economic and Social Development
141Data from National Health and Family Planning Commission of People's Republic of China
[13]
61
The cost of private medical and health care are covered by health insurance. In U.S., the
percentage of people with health insurance of 2013 was 86.6%. For people aged 65 years and
older, 98.4% had health insurance coverage. 64.2% of population was covered by private health
insurance. And the largest single type of health insurance in 2013 was employment-based health
insurance, which covered 53.9 percent of the population. [15]
Figure 5.6: Number and Percentage of People by Health Insurance Status 2013
Percent
In millions
0
40
20
60
100
80
Uninsured
42.0
271.4
With health insurance
201.1
Any private plan
169.0
Employment-based
34.5
Direct-purchase
107.6
49.0
Any government plan
54.1
Medicaid
Military health care*
Medicare
14.1
Source: Health Insurance Coverage in the United States: 2013, Jessica Smith and
Carla Medalia, U.S.
Census Bureau
Figure 5.7: China and USA Health Expenditure Ratios in 2012
China
USA
Total expenditure on health as %of gross domestic product
5.4
17
Government expenditure on health as % of total government expenditure
Social security expenditure on health as % of government expenditure on
12.5
20
67.9
87.3
Out-of-pocket expenditure as % of private expenditure on health
78
22.4
Private prepaid plans as % of private expenditure on health
7
63.7
health
Source: Chapter 7, World Health Statistics 2015, World Health Organization
[15] Health
Insurance Coverage in the United States: 2013, Jessica Smith and Carla Medalia, U.S. Census
Bureau
62
Conclusion
China senior care market is still at its infant stage and a proven development strategy has not
emerged yet. Expertise from mature markets like the U.S. is a definite competitive advantage.
But the implication of U.S. model to China must adapt to China's unique market dynamic.
It's no doubt that China senior housing market has its own characteristics. Senior housing
development should adapt to the China social background and meet the needs and desires of
local market.
Starcastle is a good example of what the U.S. Continuing Care Retirement Community model
implies for the Chinese market. Many high-end senior communities in China copy the U.S.
model from master plan, project program, unit design, quality standards, service types to pricing
structure. But the medical care service is the weakness of these projects. In current China, only a
few wealthy people can afford private medical care, since it is not covered by their medical
insurance.
In June 2015, China's State Council issued a new policy to encourage the development of private
medical institutions. This big move by the State Council implies allowing privately owned
hospitals in the medical insurance system. With private medical care joining the national medical
insurance system, senior housing development will move to a new stage. Investors can integrate
private hospitals development with senior housing development.
Chinese investors should understand that senior housing is not a typical real estate business, but a
service-oriented business. For foreign investors, a good understanding of the local market as well
as a suitable local partner will increase their chances of success.
63
Bibliography
Books
Continuing Care Retirement Communities: An Insider Tells All, Virginia Traweek, 2013
Commercial Real Estate Analysis & Investments, 2nd Edition, by David M. Geltner , Norman G.
Miller, Jim Clayton , Piet Eichholtz
Thesis Paper
The Implications of US Senior Housing to China, Yong Wang, Massachusetts Institute of
Technology, September 2007
Articles
Where is China's CCRC Industry?
Joseph J. Christian, Asia Fellow, Harvard Kennedy School, Cambridge, Massachusetts;
Michael Qu Qin, Lawyer, Co-effort Law LLP, Shanghai, China
An Untapped Market: China's Aging Population and the Senior Housing Opportunity
Amy L. Sommers, Cecillia Dai, Stuart M. Jones, September 2013
Industry Reports and Publications
Senior Care in China: Opportunities and Challenges for Foreign Investors, LaSalle Investment
Management
China Report of the Development on Silver Industry 2014, Social Sciences Academic Press,
September 1, 2014
The 50 largest U.S. seniors housing real estate owners and operators, American Senior Housing
Association, 2014
The U.S. Health Care System: An International Perspective, Fact Sheet 2014, DPE Research
Department
64
Health Insurance Coverage in the United States: 2013 by Jessica C. Smith and Carla Medalia,
issued September 2014
World health statistics 2015, World Health Organization
World Population Prospects: The 2012 Revision, Volume II: Demographic Profiles, United
Nations Department of Economic and Social Affairs, Population Division
Fertility prospects in China, United Nations, Population Division Expert Paper No.2011/1
Statistical Communique of the People's Republic of China on the 2014 National Economic and
Social Development, National Bureau of Statistics of China
REITWatch Monthly Statistical Report on the Real Estate Investment Trust Industry, March 31,
2015
Policies and Regulations
China National New-type Urbanization Plan (2014-2020)
The 18th CPC National Congress Report
The Guiding Opinions on Basic Medical Insurance Cross Cities Claims, December 2014
The Guiding Opinion on Utilization of Land Use Right for Senior Care Facility, April 2014
Opinion on Accelerating the Development of Senior Care Industry, 2006
12th Five-Year Plan on the Development of Chinese Senior Care, 2011
Implementation Opinions on Encouraging and Guiding Private Capital to Invest in Elderly
Service Industry, 2011
Opinions on Accelerating the Development of the Elderly Care Industry, 2013
Announcement on Encouraging Foreign Investors to Establish For-Profit Senior Care Institutions
and Engage in Senior Care Services in China, 2014
Policies of Encouraging the Establishment of Private-owned Medical Institutions, 2015
65
2013 Florida Statutes Chapter 651 - Continuing Care Contracts
NY Code Article 46: Continuing Care Retirement Communities
Webpages
The State Council of China: www.gov.cn
China National Committee on Aging: www.cncaprc.gov.cn
National Bureau of Statistics of China: www.stats.gov.cn
Ministry of Land and Resources of China: www.mlr.gov.cn
Ministry of Human Resource and Social Security of China: www.mohrss.gov.cn
National Health and Family Planning Commission of China: www.nhfpc.gov.cn
A Place for Mom: www.aplaceformom.com
U.S. Department of Labor: www.dol.gov
United Nations Department of Economic and Social Affairs: www.un.org/desa
Brooksby Village: www.ericksonliving.com/brooksby-village
Starcastle: www.starcastleliving.com
REIT: www.reit.com
Ventas REIT: www.ventasreit.com
Health Care REIT: www.hcreit.com
HCP REIT: www.hcpi.com
66